The Bottom Line

One Term, Many Meanings: Understanding Your Vendor Contracts

Posted by Cody Harrell on Dec 6, 2017 9:00:00 AM

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It’s no secret that our industry is littered with acronyms and jargon Most of the time it is used as a type of helpful shorthand. Even so, an outsider overhearing a conversation incorporating some of this “industry speak” might believe those of us in financial services speak an entirely different language. The truth is sometimes those of us in the industry struggle to translate the latest term or buzz word correctly. 

Terminology can have many different meanings depending on the company. Try asking people to define basic terms like “FinTech,” “card processing,” or “online payments” and count the number of different answers you receive. Whether engaged in a routine discussion with a service provider or about to embark on a formal Request for Proposal (RFP) process (or RFI, or RFQ – see what I mean about those acronyms?), it’s worth the effort to ask for clarity and avoid confusion that could cause headaches down the road.     

Apples vs Oranges

Let’s take card processing as an example. Rarely are two card processing scenarios the same, even with the same processor. For example, one financial institution (FI) may be operating an in-house, pass-through model, with its data residing within its core software while another opts for a full-service approach in which the data is housed by the processor. Some FIs have a direct relationship with their card network, while others are sponsored into the network by their processor. Some processors charge on a per account basis while others charge entirely by activity.

Given all these moving parts, it’s easy to see how a banker might catch wind of a colleague’s monthly cost for a given service and assume that he’s paying too much (or has an amazing deal), without realizing he’s comparing apples and oranges. The same caution applies when speaking directly with representatives from service providers.  Naturally, a salesperson wants to put their best foot forward, but what sounds like a “too good to be true” price could in fact be an honest miscommunication rather than an intentionally misleading offer.

There Are No Dumb Questions

Gaining clarity is particularly important when an FI is considering switching vendors. Buzzwords are to be avoided or at least meticulously defined. We advise attaching a glossary of terms to any RFP and requesting a mapping of each service provided to its invoice line item. It’s essential to ensure that existing features don’t suddenly become add-ons under a new vendor contract. Even if a term seems intuitive, it never hurts to ask the question.

When working with FI clients, our firm is expected to “get the best price.” However, a checklist outlining scopes of service must be established before a meaningful price discussion can begin. This is a basic requirement for confirming that price in fact reflects what the FI thinks it does, and that other factors (such as changes to internal resource requirements) have been duly considered.

The same type of care, if taken to understanding common terms, can be helpful in everyday business conversations as well.

Topics: Vendor Contracts